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In my blog dated December 4, 2014, I discussed the possibility that HUD/FHA’s Property Flipping Waiver (which is scheduled to expire on 12/31/14) may not be extended by the Department. In a Notice issued on December 10, 2014, HUD has announced expiration of this waiver as of 12/31/14. As a result, the industry’s fears about this waiver expiration will be realized.

Without this waiver, home sellers (with certain exceptions such as HUD REO sales) will have to wait at least 90 days after acquiring a property to execute a Sales Agreement with a prospective FHA purchaser. All sales contracts fully executed as of January 1, 2015 and beyond will now be subject to the 90 day Property Flipping Rule.

As a result, many investors who acquire, rehab and sell properties within a 90 day time frame will be less likely to entertain sales offers from buyers who are seeking FHA financing. The holding costs for such sellers would be too prohibitive for them to wait the full 90 days in many markets.

No reasons were given in the notice by HUD for terminating this waiver (which had been in effect for five years). When extending the waiver in previous years, HUD had indicated that the waiver was needed to help stabilize real estate prices and revitalize neighborhoods and communities. I am not sure what has changed since then for HUD to allow the waiver to terminate?

This announcement comes the same week that Fannie Mae announced a new 3% down payment loan for first-time buyers. The added MIP costs for FHA loans combined with new competition for high LTV loans from Fannie Mae and the termination of the 90 day Property Flipping Rule Waiver all should have a cumulative negative impact on FHA business going forward.

About the Author

Gerard (Gerry) Glavey is Senior Vice President / Chief Credit Officer for LoanLogics. Gerry has decades of experience working in residential mortgage credit and compliance and brings insights that few in the industry can match. In his role, he develops new services and provides support for all post close quality control and quality assurance, pre-close quality control, due diligence services, and document processing services.
He spent 37 years with the US Department of Housing and Urban Development, where most recently he was the Director, Processing and Underwriting Division for the Home Ownership Center (HOC) in Philadelphia. In this capacity, Mr. Glavey was responsible for the administration of all HUD/FHA Single Family Loan Origination activities, including underwriting, appraisal and endorsement for the 16 state jurisdiction of this HOC.